WARSAW, Poland & LONDON & MOSCOW--(BUSINESS WIRE)--Fitch Ratings has affirmed Russia-based Sukhoi Civil Aircraft JSC's (SCAC) Long-Term Issuer Default Ratings (IDR) at 'BB' with a Negative Outlook. A full list of rating actions is provided at the end of this rating action commentary.
KEY RATING DRIVERS
State Support
In line with Fitch's parent subsidiary linkage methodology, SCAC's ratings are notched down three levels from the ratings of its ultimate majority shareholder, the Russian government (BBB/Negative). The three-notch differential reflects the company's strong links to the state but also the lack of explicit state guarantee for SCAC's debt. However, a high proportion of SCAC's debt comes from state-owned banks while state-owned intermediate holding companies, including United Aircraft Corporation and Sukhoi Aviation Holding, provide guarantees in support of a material proportion of SCAC's debt. The Outlook reflects that of the Russian government.
Due to the government's shareholding, Fitch expects SCAC to continue to receive support from the Russian state via further equity injections over and above what has already been contributed. Any waning, or perceived waning, of that support, is likely to lead to SCAC's ratings being further notched down from those of the sovereign.
Super Jet 100
The relationship between SCAC and the Russian government is underpinned by the strategic importance of the Super Jet 100 (SSJ 100) aircraft to the state, which is likely to be the entry point for other Russian commercial aircraft programmes such as the MS21. In 2014, the SSJ 100 has been complemented by a business jet version as SCAC's only products to date. A stretch version of the SSJ 100 is likely to be delivered around 2018.
Expected CIS and Emerging Market Demand
Other factors influencing the ratings are strong domestic demand for the SSJ 100 (152 orders taken to date plus 53 options/soft orders), the presence of French-based engine manufacturer SNECMA as a risk-sharing partner on the SSJ 100 programme, and the long-term potential for cash flow generation. On a standalone basis, however, SCAC is unlikely to be profitable in the next two years.
RATING SENSITIVITIES
Future developments that could lead to positive or negative rating actions include:
--Changes to the sovereign ratings, which could prompt a review of the company's IDRs, National Ratings and Outlook.
--Any strengthening of state support, such as a provision of written guarantees of SCAC's debt from the Russian Ministry of Finance, would likely lead to a closer rating linkage between SCAC and the government. A weakening of support, such as a reduction in the state's shareholding in SCAC, or a waning commitment to the company's programmes, could lead to a widening of the rating gap between Russia and SCAC.
Fitch's rating actions are as follows:
--Long-term foreign and local currency IDRs affirmed at 'BB'; Outlook Negative;
--Short-term foreign and local currency IDRs affirmed at 'B';
--Foreign and local currency senior unsecured ratings affirmed at 'BB';
--National Long-term rating affirmed at 'AA-(rus)'; Outlook Stable;
--National Short-term rating affirmed at 'F1+(rus)'.
For the sovereign ratings of the Russian Federation, Fitch has the following rating sensitivities as of the rating action commentary dated 25 July 2014:
Future developments that could individually or collectively, result in negative rating action include:
- An intensification of sanctions, resulting in further restrictions in access to financing for the private and/or public sectors or reduced export market access, or large-scale capital flight.
- A further deterioration in growth prospects, with an impact on the financial system.
- Large-scale stimulus measures that would endanger macroeconomic stability or the sustainability of public finances.
The Outlook is Negative. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a positive rating change.
Future developments that could individually or collectively, result in a stabilisation of the Outlook include:
- A reduction in tensions with the international community, resulting in a reduced risk of wide-ranging sanctions being imposed.
Additional information is available at 'www.fitchratings.com'.
Applicable criteria, "Corporate Rating Methodology", dated 28 May 2014, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=959796
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